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Toyota's recalls - a cautionary tale

The recent crisis for one of the world’s leading automotive manufacturers has been blamed on a range of factors, but it’s really a problem of risk management, says Bill Michels

Give Toyota credit for one thing during the recent crisis that forced the company to recall more than 8 million vehicles worldwide: it didn’t try to blame its suppliers.

Toyota is a model for supplier relationship management and if ever there were a test of its principles, this was it. We only have to remember how Ford treated Firestone after tyres failed on Ford Explorers. It blamed the quality of tyres coming from one of Firestone’s plants for crashes. Firestone countered with accusations that Ford’s vehicles were prone to rollover, and the incident severed a 100-year relationship.

In contrast, when problems came to light in the accelerator pedals made by CTS Corporation, Toyota immediately said it shared the blame, because its engineers had designed the mechanism in partnership with the supplier.

However, the bad news for Toyota’s reputation was that it apparently knew about unexplained accelerations but was more concerned about minimising the problem than pushing its famous lean manufacturing process to get to the bottom of the issue quickly.

True, the uncontrolled acceleration incidents were relatively rare. Toyota engineers and US government officials could not reliably recreate the failures in the laboratory. This was not a clear-cut case of a batch of parts failing to meet quality specifications.

To further complicate the issue, there remains some uncertainty about the causes of the acceleration problem. The company says it was caused by floor mats in some models and corrosion in the pedals in others, and there are lingering questions about electronic controls – perhaps susceptible to magnetic fields – that have not been properly answered.

But taken all together, the real question is: was this a problem of Toyota’s famous lean manufacturing process, or was it a problem of risk management?

What has stunned many of us is the staggering number of models that shared the same accelerator component – more than half of the 8 million recalled vehicles. Using the same part across that many models and vehicles is a great example of the power of lean manufacturing to reduce inventory and cut costs.

But when a design goes wrong, it is extremely difficult to isolate the cause. In the case of the acceleration problem, a large part of the company’s operation had to shut down while engineers searched for a solution.

It is tempting to say that this crisis is caused by too great a reliance on lean manufacturing principles. But I believe it’s a flaw in risk management. Lean manufacturing does increase certain risks, and those risks must be anticipated and mitigated.

Since the fault seemed to be in the design of the parts, not the production process, one approach to managing the risk would have been to add fail-safe features. Other car manufacturers reportedly have brake overrides in their electronic controls, but Toyota did not on the recalled models.

The reality is that in the case of Toyota, there was extreme risk with one supplier across multiple models. This supply chain failure will serve as a case study in both supplier relationship management and risk management for years to come.

Bill Michels is CEO of ADR North America LLC, Ann Arbor, Michigan

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